Women And Finance: Is The Picture Improving?

Studies show women aren’t confident about their finances but are eager to learn. The growth in educational tools tailored for women at banks, brokers and investment houses could improve the picture of women’s finances.

Given her skill at handling money, Elizabeth Dodson could be a model for women. She meets quarterly with her financial advisor and holds a monthly meeting with her husband about household finances. And when it comes to budgeting, this co-founder of HomeZada, a digital home management system, seems to have it nailed: To track all outlays, she maintains individual spreadsheets on a range of expenses, such as health care, home maintenance, travel, entertainment and the like.

Perhaps it’s not surprising. Raised by a single mother, Dodson learned the value of money at an early age, and she obtained a bank job while still in college.

And while she may be well ahead of the curve when it comes to women’s grasp of personal finance, some signs show — beneath the heaps of bad news about women and money — that many women actually want more knowledge of finance.

The process doesn’t have to be daunting, though data suggest that many women think it is.

Elizabeth Dodson is a solid role model for women who want to seize control of their financial future.

In a new report by Transamerica Center for Retirement Studies, a paltry 10% of women are “very confident” about being able to retire with a comfortable lifestyle. And women’s estimated total household retirement savings? A median $34,000.

Perhaps the most striking trend: the evident decline in women’s knowledge about their investments. According to TCRS’s data, in 2016, nearly one-third (32%) of women were “not sure” how their retirement savings are invested, up from 22% four years earlier. For men, the comparable figure was 14%, both in 2016 and in 2012.

And, while both men and women bombed on a 2015 investor literacy quiz, the scores were worse for women. The FINRA Investor Education Foundation had asked 10 questions of people with investments outside of retirement accounts. The resulting average scores: 4.9 correct answers by men, and 3.8 by women.

Of course, long-term trends have taken a big toll. On average, women have earned less than men — making them less able to save — and in many cases they’ve taken time away from work to care for family members. And when it comes to experience with money, men have traditionally handled the family’s finances, while women have often been discouraged from discussing money.

Alexandra Taussig of Fidelity says the glass if half full when it comes to women in finance. (Fidelity)

But is the picture quite as bleak as it seems? On the brighter side, a 2015 Fidelity Investment survey showed that while many women do worry about their money lasting through old age, fully 92% of women want to learn more about financial planning. “Overall, we have a lot of research on women and programs for them,” says Alexandra Taussig, senior vice president at Fidelity. “And we definitely believe the glass is half full (vs. half empty) when it comes to women and finance.”

Indeed, various reports show women investors outperforming men. Consider a new study by Wells Fargo Investment Institute: “In our report due out in April, we compared returns over the last five years of actual investment accounts where the primary account holder was male vs. those where the primary account holder was female. We studied total returns and returns adjusted for risk. In both cases, women’s accounts outperformed men’s,” says Tracie McMillion, Wells Fargo’s head of global asset allocation.

Why? Frequent trading can dampen returns. Wells Fargo’s research shows that women trade less frequently and are more willing to stick to a long-term investment plan, which results in outperformance.

As McMillion holds, people “don’t need to know all the intricacies about finance to make good investment decisions.”

Personal finance doesn’t have to be confounding, and skills can improve gradually, step by step. “As a starting point we need to know what we own, how much we owe and where our money is invested,” said Fidelity’s Taussig. “Simply saving money isn’t enough; we need to invest it and be in the market consistently over time.”

Those needing help can find an abundance of services and materials, everywhere from libraries to a host of financial websites. And if desired, “products such as target-date funds and managed accounts can do the heavy lifting” for you when it comes to selecting and managing your investments, Taussig says.

And as for budgeting: That, too, can be worked out comprehensibly. Consider Fidelity’s suggested guidelines for parceling out income. Broadly, Fidelity suggests setting aside 50% for essential expenses (housing, food and transportation), 15% for savings, and 5% for an emergency fund. The remaining 30% can be used for extra expenses.

And after retirement? Consider the 80% formula. As Wells Fargo’s McMillion explains, “As a rule of thumb, in retirement you can figure your expenses will equal about 80% of your salary while you were employed.”

So save and invest to have a nest egg that can provide 80% of your needs for as long as you expect to need it. Social Security, private pensions and any other annuity like savings will be a part of that income. To make up for any shortfall, you’ll have to draw from your employer sponsored plan, like a 401(k), your IRAs and other accounts. Or keep working.